Treasury (YCGT0025) 30-year bonds were poised for their biggest weekly drop in 31 months before U.S. data forecast to show consumer sentiment improved and factory output increased in the world’s largest economy. Yields on U.S. government debt with maturities ranging from two years to 30 years have gained this week after the Federal Reserve raised its assessment of the economy on March 13 and refrained from adding to so-called quantitative easing to lower borrowing costs. Fed Bank of Richmond President Jeffrey Lacker said today the U.S. central bank would likely need to raise interest rates next year. “Amid strong U.S. economic indicators, market speculation over another round of quantitative easing is weakening, which results in higher yields,� said Tomohisa Fujiki, a rates strategist in Tokyo at a unit of BNP Paribas SA, one of 21 primary dealers that trade directly with the Fed. “Looking ahead to the year-end, we expect yields to rise.� Thirty-year yields added one basis point to 3.43 percent as of 2:27 p.m. in Tokyo from the close in New York yesterday. They have risen 25 basis points since March 9, set for the biggest weekly gain since August 2009. The benchmark 10-year yield rose two basis points to 2.30 percent, 27 basis points above last week’s close. The 2 percent security due February 2022 dipped 5/32, or $1.56 per $1,000 face amount, to 97 11/32. Japan’s 10-year bond yields declined 1/2 basis point to 1.05 percent in Tokyo, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The rates have risen 6 1/2 basis points since March 9, set for the biggest weekly advance since November. Inflation Outlook The Thomson Reuters/University of Michigan index of consumer sentiment probably rose to 76 in March, according to a Bloomberg News survey of economists before a preliminary reading of the gauge is released today. The measure has not been that high since February last year. Economists forecast industrial production gained 0.4 percent in February, a separate poll shows. Output was little changed in January. The U.S. consumer-price index that excludes food and energy costs may have risen 2.2 percent last month from a year earlier, according to economist estimates before the data today. “The economy is expanding at a moderate pace� and inflation is close to the Fed’s 2 percent objective, Lacker said in a statement on the Richmond Fed’s website. “My current assessment is that an increase in interest rates is likely to be necessary some time in 2013.� The central bank said in January that it would keep the benchmark interest rate at almost zero through at least late 2014. The Fed bought $2.3 trillion of securities in two rounds of quantitative easing from December 2008 to June 2011. Oil Prices U.S. Treasury Secretary Timothy F. Geithner said yesterday that consumers are “feeling the effects of higher gas prices.� Crude oil futures have risen 6.8 percent this year and reached a 10-month high on March 1. The 10-year breakeven rate, derived from the difference between yields on conventional and inflation-linked debt, rose to as high as 2.4 percentage points yesterday, a level unseen since Aug. 2. Demand for Treasuries was bolstered before data next week that may signal Europe’s economy is struggling to recover from the prolonged debt crisis. A composite index of the euro area’s services and manufacturing industries is forecast to be 49.8 this month, economist projections show before Markit Economics releases the figures on March 22. While it would be higher than 49.3 in February, it is still below the 50 level that delineates expansion and contraction. The European Commission may say the same day that its gauge of consumer sentiment was minus 20 this month, according to a separate survey. It stood at minus 21.3 in December, the lowest since August 2009. “A source of the global slowdown is Europe’s fiscal problem,� said Makoto Suzuki, senior debt strategist in Tokyo at Okasan Securities Co. “Focus on that problem spurs demand for safe assets and is a factor for yields to decline.� To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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